It’s only been two weeks since Iridium L.L.C. shut off its network in disgrace, and already Globalstar L.P. is feeling the skepticism analysts and the media have heaped upon it as a result.
The company’s stock, which has fallen 75 percent so far this year, fell 9 percent last week after an analyst from ING Barings downgraded Globalstar to hold from buy. Meanwhile, The Wall Street Journal reported slow subscriber demand has resulted in Globalstar slashing prices.
Officials at Globalstar say the negative reports have more to do with the cynical outlook on the satellite industry as a result of Iridium’s failure than any action taken by Globalstar.
“If Iridium hadn’t happened, we wouldn’t be having this conversation,” said Globalstar spokesman Mac Jeffery. “We’re paying for their sins.”
Lamenting the company’s falling stock price, Jeffery said the recent ratings downgrade has little to do with Globalstar problems, but rather negative views on the entire industry.
“Analysts turned against us quick,” he said. “Everything is exactly as it was before, the only factor that changed was Iridium … Iridium really spooked people.”
He pointed to the ING Barring downgrade in particular. The analyst said he based his downgrade on the fact that Globalstar had only 15 gateways functioning, “leaving important territories without service.” He also cited what he called a low number of fixed site unit orders and the lack of any partnerships in Asia.
“He knew that a month ago and he had a buy rating on us then,” Jeffery said. “Tell me what has changed? That just proves my point. All this information they based this on was out there a month ago. We’ve said all along we’d roll out the gateways, and we’re not behind schedule.”
ING Barring also lowered its first quarter revenue estimates to less than $700,000, from $5.1 million, and lowered its 2001 target price to $12 from $28.
Globalstar’s only delay, Jeffery said, was in production of the Ericsson R290 satellite phone, which is back on track now that the European Telecommunications Standards International body has given it European standards approval.
“The Ericsson phone slipped-we owned up to it and now it’s back in production,” Jeffery said. “It’s ironic they’re digging us on the gateways.”
Globalstar also took shots last week for its pricing of both handsets and airtime. The company said it will offer distributors lower-priced handsets and airtime for a limited time as a promotional effort, but was not instituting across-the-board price cuts permanently.
“It’s just to jump-start things and get phones in people’s hands,” Jeffery said. A short-term price relief for handsets and minutes allows distributors to offer customers a deal, giving a break on the purchase of a handset and a percentage off airtime through a certain date, after which handset and airtime prices would go back to their original state.
Jeffrey said media and analysts have long faulted Globalstar for its pricing scheme, with handsets going for about $1,500, but then attack the company as being weak when it offers pricing promotions. Jeffery said The Wall Street Journal article made it seem like the price cuts were a permanent change in the face of lagging subscriber numbers.
“We told them it was a promotion, and they made it sound like it was a permanent, structural change in our business model-it’s not,” he said. “Cutting prices doesn’t really accelerate the ramp-up of customers. Limited-time promotions do.”
Jeffery didn’t discuss current subscriber figures, which the company has delayed disclosing until later this year. But Globalstar Chairman Bernard Schwartz eased off his subscriber target for the end of the year by almost half, to about 400,000. ING Barings has the figure closer to 150,000.
However, Jeffery didn’t rule out eventual permanent price cuts.
“If over time the business is going as we hope, and volumes are up, prices can come down,” he said.
Some Globalstar distributors expect that to happen this year. Toni Carinci, manager of marketing communications at Globalstar USA, the exclusive U.S. distributor of Globalstar products and services, said Globalstar and Qualcomm Inc. are working together to introduce lower-priced handsets, and expects handset prices to start dropping in six months.
“Once we get relief on our wholesale prices, we’ll pass that along to the customer,” she said.
As for airtime charges, no specifics are available yet. Carinci said she would expect some airtime prices to drop, but not for some time, longer than the six months expected for handsets.
“It’s like any business,” Jeffery said. “Cell phones were like $700 and $1 a minute. Any technology comes in and starts at a certain price and goes down over time. The difference with us is it’s not coming down tomorrow, but our intent has always been to lower our prices.”
